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Experts: Russian mogul might aid Rusal by reducing stake, but unlikely to escape sanctions

April 25, 17:44 UTC+3 MOSCOW

Earlier, the US Department of the Treasury said that sanctions relief could be provided for Rusal if Oleg Deripaska makes divestment and relinquishes control over the company

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Oleg Deripaska

Oleg Deripaska

© Sergei Savostyanov/TASS

MOSCOW, April 25. /TASS/. Co-owner of aluminum company Rusal, Russian businessman Oleg Deripaska, might lower control over the company to mitigate sanctions, as required by the US authorities, without selling his stake in it, analysts told TASS. However, it is unlikely that Rusal will get out of the strict US sanctions completely.

On Monday, the US Department of the Treasury said that sanctions relief could be provided for Rusal if Oleg Deripaska makes divestment and relinquishes control over the company. Currently, Deripaska holds a 48.13% stake in Rusal. Meanwhile, the Office of Foreign Assets Control (OFAC) of the US Treasury extended the deadline for ending transactions with the Russian aluminum producer until October 23, 2018.

After the news, Rusal shares on the Hong Kong Stock Exchange on Tuesday soared by 43% - to 2.2 Hong Kong dollars per share (before the sanctions imposed on April 6, the company's shares reached $4.6 per share).

According to analysts interviewed by TASS, Deripaska can formally meet the requirements of the US authorities without selling his stake in the company. Currently, he controls Rusal through En+. According to the shareholder agreement, this company, which owns only 48.13% of Rusal's shares, has the status of a controlling shareholder. Another 26.5% in the company belongs to Sual Partners and Zonoville Investments (owned by Viktor Vekselberg, also included in the SDN list), 8.75% - to Swiss trader Glencore.

"In fact, in order to meet the requirements of the United States, it would be enough to remove the point about the controlling shareholder from the agreement. Deripaska would not even have to sell anything," analyst at Finam Alexei Kalachev said. At the same time, he admitted that the very wording of the requirement to reduce control over the company looks very vague and the US Treasury might not be satisfied with just a formality.

"If you approach it literally, then it would be enough to remove one point from the agreement, and if you approach it informally, then the parameters of relinquishing control are not clear," he noted.

Experts do not rule out transferring the stake to another person or company. Kalachev believes it is possible to transfer assets to an independent management company. According to Corporate Ratings Group Director at ACRA analytical rating agency Maxim Khudalov, a blind trust could be used. "This is a situation when a part of the company's shares is transferred to the management of an independent fund, which then makes strategic decisions," he said.

However, in this case Khudalov also sees legal complications. The SDN list prohibits any transactions with Rusal shares; otherwise, they may entail secondary sanctions for the company’s counterparties. The fund may be Russian, but whether the United States would be fine with its jurisdiction is unclear.

"In order to remove sanctions from Rusal, it is necessary to fulfill the requirements of the US Treasury in the most transparent way. That is, not by using trusts, but by selling the stake to a person or a company not included in the sanctions list," analyst at Raffaisenbank Irina Alizarovskaya said. Alizarovskaya did not rule out that it could be necessary to transfer the shares to a foreign company. According to her, the shareholder agreement would need to change as an additional measure for selling the stake.

Russian Minister of Industry and Trade, Denis Manturov said earlier that he did not rule out the state buying out Deripaska's stake in Rusal. However, he noted that this idea had not yet been discussed in detail.

Meanwhile, analysts question the nationalization option. "Rusal is an offshore-registered company. How would it be possible to buy a stake in it using the budget? It is possible to nationalize its plants, but not the company," Kalachev said.

"Nationalization does not particularly brings benefits. From our experience, state-owned companies are even more likely to fall under sanctions than private ones. Thus, it would not save the company from restrictions, but only add burden on the budget," Khudalov added.

Analysts consider selling the stake to another large Russian businessman possible. They named people like co-owner of Norilsk Nickel Vladimir Potanin, Roman Abramovich and former Rusal shareholder Mikhail Prokhorov as possible partners. "But that would not help a lot either. They are not under sanctions today, but tomorrow they can be on the list," Alizarovskaya said.

According to Khudalov, the idea that the United States can completely remove Rusal from the sanctions list should not be considered seriously. "The most recent statements were dictated not by good intentions, but protests from European partners that might not receive aluminum, or receive very expensive aluminum," he said.

Khudalov considers sanctions against Rusal to be a part of the US trade campaign, which uses duties on imports of steel and aluminum. "A 10% duty would not do much to Rusal. It required sanctions to knock out one of the largest suppliers from the US market," he said.

Saving Rusal does not lie in removing restrictive measures, but in developing domestic aluminum consumption market, as well as increasing supply of primary aluminum to China, Khudalov said. The expert remained skeptical towards the complete removal of restrictions. "As far as I know, no one has ever left the US sanctions list. It requires a lot of coordination, which does not always depend on the US Treasury. According to our experience, sanctions were lifted only when the US President suspended the relevant law, which would require going through the Congress," he said.

Finally, experts recalled that Deripaska himself suggested earlier that sanctions against Russia "would never be lifted.".

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